Diversifying your e-commerce marketing mix by investing in referral marketing will undoubtedly increase your sales. To ensure this growth, the first step is to have a referral program in place. The second step is tracking a number of referral program metrics.
But each marketing campaign is unique and can involve certain metrics to guide your decision-making and evaluation. The greatest challenge for most marketers is the ability to identify and measure the right metrics for a campaign.
So, if you’re planning to create a referral campaign, which referral program metrics should you track? This is what we’ll be covering in this article.
Let’s explore these verified referral marketing metrics that help e-commerce brands save time, effort, and money.
Benefits of referral programs
There’s a good reason referral marketing programs are regaining popularity in e-commerce today.
Put simply: They work!
Following referral marketing best practices helps you skip others’ mistakes and fast-track your way to success.
But how do referral programs really work? What is the benefit for you as a store owner?
– Grows your customer base
This is the basic reason retail businesses use referral programs; to grow their audience and number of customers.
Your new referrals can also begin referring to you to their friends and family and accordingly growing your customer base.
– Increases sales
Generally speaking, a wider audience may or may not translate to more sales. However, with referral programs, you can easily increase your sales by only giving your customers their rewards once their referral makes their first purchase.
– Customers trust you faster
With referrals, customers are more willing to trust you and buy from you because you’ve been recommended to them by people they trust.
Recommendations are trusted, compared to people who come across your store or brand for the first time.
– Cost effective customer acquisition
A referral program is an inexpensive marketing tool. It helps you acquire new customers while reducing your customer acquisition cost (CAC).
What you need to know about referral marketing data
The quality of data collected and analyzed during a campaign will make or break the campaign.
That’s why before we jump in, here are a few reminders about collecting data:
- A good campaign lifecycle is not determined by having too much data.
- Not all data is helpful.
- Data relevant to business decision-making is the most significant.
Must-follow referral program metrics for e-commerce brands
Now that we’ve got that sorted, let’s explore the top referral marketing metrics for e-commerce.
1) Participant Response/Conversion Rate
Beyond doubt, this is the most important referral metric to measure. Why? Because it reveals the success – or failure – of your referral campaign.
This referral marketing metric shows you how many referrals took the desired action or completed the required process of signing up or signing up and making their first purchase.
The response rate also indicates whether other aspects of the campaign, such as increasing sales, gaining new subscribers…etc, were successful.
A good response or conversion rate in e-commerce is 10% and above. A lower rate could be caused by:
- Vague campaign copy that makes it difficult for users to see the benefits of participating.
- An overly complex process of participating in the referral campaign
- The rewards aren’t juicy enough to entice current customers to refer you to others
- Misalignment of campaign purpose and users’ needs and expectations.
2) Customer Acquisition Cost (CAC) of Referrals
Sometimes called acquisition cost, CAC helps you determine the cost of acquiring a single buyer.
This is an essential customer acquisition and loyalty marketing metric. It’s also important in referral marketing as it reveals the total amount of money required to generate a lead during your referral campaigns.
It also shows how much you’ve spent to convince and convert customers into buying from you.
Customer acquisition cost uses this formula:
CAC = All sales and marketing expenses ÷ Total number of new customers acquired
3) Click-Through Rate (CTR)
This is the percentage of people who clicked on the referral link sent by one of their friends or family or a participant.
With referral programs, participants usually have a direct relationship with those they’re inviting, leading to a high rate of clicks.
By customizing the participant’s invite or referral message to include a few details about them such as name or nickname or code, invitees tend to click more on the link.
4) Campaign Impressions
Known as Referral Program Impressions, your campaign impressions indicate the overall exposure of your referral program.
The more visibility your referral program has, the more referrals it’ll get. This referral marketing metric shows whether the call-to-action (CTA) button is effective in converting leads and referrals or not.
It indicates who clicked the referral link, where they encountered the link (such as geographical location and channel like email, Twitter, etc.), and more.
5) Participant Share Rate
This metric refers to the average number of active users sharing invites. It shows the average number of unique shares per campaign participant.
The participation share rate is usually measured within a specific time frame, such as the last 3 months.
By analyzing this referral program metric, you can find answers to relevant questions such as why some customers engage with a referral program while others don’t.
Getting this information helps you focus on resolving why customers don’t engage with a referral program. Also, you might find out that the CTA button is unclear, wrongly placed, or requires a modification to make it work effectively.
To improve your customers’ or participants’ share rate, you should make sharing the referral link easy, allow for multiple channel sharing, offer high-value rewards, and probably a milestone challenge to unlock more juicy benefits.
6) Referral Revenue and Referral ROI
The number of sales earned from a particular referral marketing campaign represents the revenue of that campaign. Whereas, referral ROI is the amount of money earned through the program minus the cost of running the campaign.
Both the referral revenue and ROI metrics help you determine whether you have a well-performing campaign strategy or if it’s performing poorly. Knowing this, you can make adjustments where necessary.
7) Customer Retention Rate (via Referrals)
The customer retention rate (CRR) is a referral marketing and loyalty program success metric that indicates the average number of customers who keep coming back.
The CRR indicates the average number of customers who remain loyal to the brand for a given time, especially those acquired through a referral marketing program. This data indicates the health of the campaign, customer loyalty, and satisfaction levels.
It’s worth stressing, however, that you should measure the customer retention rate for referrals separately from other metrics to see the true picture of the campaign. You can evaluate your referral CRR on a weekly, monthly, or yearly basis.
8) Churn Rate
This is an important business metric that focuses on the percentage of paying customers who stop using a product or service. In the case of e-commerce, they’re the number of people who stop coming back.
When referral marketing is done right, research says that referred customers are 25% more likely to be retained within the first three years than customers who come from any other source.
This drastically reduces a business’s churn rate by a wide margin. Regardless, some marketing campaigns still experience a high churn rate, so it’s a metric you need to evaluate. Many times, when there is churn in a referral program, it is caused by:
- A mismatch between expectations and reality especially with the campaign promises and hype.
- The initial incentive or benefit outweighs the benefits or value of staying with the brand.
- Incentives or rewards are hard to earn or too far apart, which demotivates customers.
It is popularly believed that “talk is cheap.” You may disagree with this after seeing how much power word of mouth and referrals have over business sales and profitability.
Desiring or running a referral marketing program isn’t enough. Collecting, measuring, and evaluating the above mentioned metrics will boost the success of both your referral program and your store.
Be sure to explore the different ways to get referrals. You can also explore creative ways to reward customers for referring you.
Want to see the power of referral marketing and get customers to refer you to friends and family?
Then, check out Gameball’s super easy and customizable referral marketing software. You can tailor it to match your store’s branding, messaging, and more. If you’re on Shopify, then simply add the Gameball app from the Shopify app store.
Gameball is a customer engagement, loyalty, and referral marketing platform. We help online businesses increase customer loyalty and use referrals to grow.